Cost Recovery Accounts Require Vigilance

Written By: Ron SleeArticle Date: 02-01-2006Copyright(C) 2008 Associated Equipment Distributors. All Rights Reserved.
Have you dealt with the consequences of changing fuel prices?

I'm sure each of you is aware of the impact of fuel price changes on your businesses. You're paying higher heating and air conditioning costs, your customers are more concerned about the fuel economy of the equipment some of you sell, etc. But I'm wondering if you've considered the

Inbound and outbound freight costs to the Parts Department.

Field truck charges to the Service Department.

Inbound and Outbound FreightThe emergency freight charges you incur for inbound freight and outbound freight charges must be charged to the customer if you are going to receive the same amount of money you pay out. And that is easier said than done.

Customers view charges for inbound freight as something they have to pay even though they believe the dealer caused the problem. I'm sure each of you has heard this from your customers: "Why am I paying freight for a part you should have in your inventory?" or "You should be stocking that part in your inventory."

Freight charges from the Parts Department to customers cause more anger than any other charges issued by the Parts Department. That said you must recover the costs of freight for emergency backorders and outbound freight.

The outbound freight issue is much easier to resolve and yet most dealerships come up short when you compare what they put on the invoice to what they spent for the freight. To make matters worse, freight charges have increased in the past 12 to 18 months by nearly 50 percent for many dealers.

The inbound emergency freight issue for non-stock parts should be a transparent discussion with customers. If you haven't had sufficient activity in the past 12 months to stock a part, they should be able to accept that they will have to pay the costs you incur. That is, unless it is a backorder for a fast-moving part. First, that should never happen, but more importantly, the customer should not have to pay for freight on these parts.

The goal is to recover 100 percent of the costs for inbound and outbound freight. Anything less is the same as giving the customer a discount.

Field TrucksField trucks are another area that can be contentious with the customers. They want your field service vehicle to arrive at the jobsite at no cost. They complain that you are charging driving time at your retail labor rate.

The change in fuel prices has caused many of you to change your charge rates. Or you have added a fuel surcharge.

Whether you use a zone charge, charge mileage and driving time, or charge a fixed mileage rate, the result has to be the same. The goal is to recover all the costs for the field service vehicle - capital costs, depreciation, leases - as well as the operating costs: fuel, tires, licenses, etc. You have to recover all of the costs. Again the customer will object, but either they pay for the vehicle or they will be charged a higher rate.

More On Field TrucksThe costs associated with letting the technician take a field service vehicle home at night has become significant. In my experience, it represents 25 percent of the total field service vehicle cost. And it is entirely non-recoverable.

What is your policy? I know this is an employee benefit and that you shouldn't be playing around with anything that affects the technicians as they are hard to find and harder to keep. And the instant rebuttal to keeping the vehicles at the dealership overnight is that you dispatch the field service technicians from their homes. This is a nice dream that rarely happens. The real answer is the vehicles need to stay at the dealership overnight.

Remember a cost that should be recovered but isn't is the same as a discount.

Associated Equipment Distributors (AED) is an international trade association representing companies involved in the distribution, rental and support of equipment used in construction, mining, forestry, power generation, agriculture and industrial applications. AED member dealers are unique in that they are each authorized, via contract with an original equipment manufacturer, to inventory, sell and service new machinery in a given geography. More than 90% of AED's factory authorized dealers rent construction equipment as well. The Associated Equipment Distributors strongly adheres to and strongly advocates principles of integrity, ethics and fairness. The AED urges its members to conduct their businesses ethically and compatibly with the free enterprise system and the laws which govern it. Contractors can locate factory authorized construction equipment dealers at the MachineMart® web site.